Credit growth may be slow: Bankers

Making a strong case for delaying the withdrawal of accommodative monetary stance of the Reserve Bank of India, some of the bank heads who met Governor D Subbarao in the customary pre-credit policy meeting said credit growth might fall short of the central bank’s projection of 20 per cent.

“We said the RBI that loan growth for the current year may be around 15-16 per cent. Though we are sanctioning loans but actual disbursements are not taking place. Taking all these bottlenecks into account, we have projected our credit growth,” a banker who attended the meeting told Business Standard. The second quarter review of the annual policy of RBI is scheduled on October 27.

 

Credit growth had fallen to 12.6 per cent year-on-year as on September 25. With loan growth expected to fall short of the target and economic revival still in the nascent stage, bankers felt RBI should continue the accommodative stance for some more time.

“Bankers wanted accommodative monetary stance to continue because things are just picking up. This was noted by the governor,” another banker said.

The country’s industrial growth for August was 10. 4 per cent on year. It recorded a double-digit growth for the first time since October 2007.

Last month, the governor indicated that India may exit from the accommodative stance before other nations but he is not clear when to start exiting.

Some of the bankers who were present at the meeting today said there was no clear indication from the governor on when the central bank planned to start tightening the accommodative stance.

A section of bankers however felt that loan growth would pick up in the remaining part of the financial year.

“The view is that there is ample liquidity in the system, unless the liquidity is absorbed and credit growth picks up, interest rates will not go up. There may be a spurt in credit demand. So the interest rates are expected to rise,” said IDBI Bank’s Chairman and Managing Director Yogesh Agarwal after coming out of the meeting.

“After Diwali, credit growth will happen and the surplus liquidity will be mopped up very fast,” Agarwal added.

Bankers also reiterated their proposal to RBI for hiking the held-to-maturity (HTM) cap to 27 per cent from 25 per cent now.

Banks have used up most part of their held-to-maturity portfolio to avoid incurring mark-to-market losses due to the huge government borrowing programme.

Among the bankers who attended the meeting were OP Bhatt, chairman of State Bank of India, Chanda Kochhar, managing director and chief executive officer of ICICI Bank, MD Mallya, chairman and managing director of Bank of Baroda and Aditya Puri, managing director of HDFC Bank.